I’ll get to the interest-free bit later. This post is about the great loans/investment service Zopa.

For those who haven’t heard about it, Zopa let’s people with money lend money to people who want loans, and it’s all relatively low risk. I’ve been using Zopa for a couple of years now (I’m a lender). Initially I signed up because they were offering a £30 bonus if you became a lender, but I since have gradually invested a bit more money in it (although a pretty small amount by most standards).

It’s quite hard to explain how it works, but once you get it, it is quite simple. As a lender you split your invested money into chunks (say for example £10 chunks), and set how much return you’d like on your investment.

Zopa then offer your chunks, together with chunks from other lenders, to borrowers who want to borrow money. The borrowers are split into categories, based on their credit rating.

Because (as a lender) you are not lending more than your specified chunk size to each lender, you won’t lose too much in the unlikely (Zopa only allows low risk borrowers into the markets) situation that one of your lenders defaults. Zopa take a small percentage of the money you lend out, and charge borrowers a small fee per loan.

The current economic climate means Zopa is great for both borrowers and investors: banks are reluctant to lend, and have pushed up the rates to those they do lend to, and savers can’t get a good rate on their savings elsewhere. This means savers get relatively high rates, and borrowers get relatively low rates.

Since I joined, my average rate is 8.91%, which I would struggle to get anywhere else! It can also get quite addictive adjusting your rates and offerings so that you get the most out of your investment, while making sure your money is snapped up quickly.

So, how can you get an interest-free loan? Zopa predict that their 10,000th loan will be made during July. If you’re the lucky borrower, they will pay your interest! Not a bad deal!

Use my referral link to Zopa, and I get a small bonus, but I would recommend them even if I didn’t get it (although being honest, I probably wouldn’t have taken the time to write this!). If anyone has any questions (I probably haven’t explained it all very well), let me know (or visit Zopa who explain it in a much better way!).